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Lev, Tax Advisor

Category: Tax

Satisfied Customers: 24446

Experience: Taxes, Immigration, Labor Relations

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I was off in 2010 and later filed for bankruptcy, which

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I was laid off in 2010 and later filed for bankruptcy, which was discharged in 2011. I owned a house and a rental which were going to be repossessed in the bankruptcy. The banks did not repo until 2012. Now I am filing 2012 taxes. I am filling out Form 982 and am baffled about line 10a. I can calculate the amount of assets less liabilities after the end of the bankruptcy, but where do I put adjusted basis? What does assets over liabilities mean exactly? Subtract? Divide? Also I was told to delay filing regarding the bankruptcy by a tax professional because of the delay in foreclosure, but now I wonder if they misunderstood me or I them. All but about 8000 of the bankruptcy was in the 2 homes- the rest was personal debt. Should I file an amended 2011 return or include the 8k in 2012? I assume I also file an 8949 and am reviewing 4681 Any other special forms for this challenge?

Hi and welcome to our site!I can calculate the amount of assets less liabilities after the end of the bankruptcy, but where do I put adjusted basis?Adjusted basis is NOT reported on form 982 - you only report the amount of debt forgiven.You will use adjusted basis on form 4797 when you report the disposition or rental property.

Customer:

Ok thank you. What about the amended 2011 return or including the 8k in 2012 due to the delay in filing?

Lev :

What does assets over liabilities mean exactly? When you prepare your Insolvency Worksheet - you need to determine if you are insolvent.The worksheet may be found on page 6 in this publication - http://www.irs.gov/pub/irs-pdf/p4681.pdfYou list all your assets and all your liabilities. This worksheet is not sent with your tax return - just keep it for your record.

Lev :

What about the amended 2011 return or including the 8k in 2012 due to the delay in filing?If you received a form 1099C for 2011 - you need to amend your 2011 tax return. However if form 1099C is sent for 2012 - - it should be reflected on your 2012 tax return.

Lev :

Please be aware that personal home and rental property are reported differently.For personal home - you need just report cancelled debt on form 982 and in most situations do not need to report the disposition unless you received form 1099S or if you have a taxable gain.For rental...

Customer:

Thanks I only got 1 1099c for all 6 loans, so I guess 2012 it is. I will do the insolvency worksheet. Do I still need to do this if I had a Chapter 7 bankruptcy discharge? It is complicated because the bankruptcy was discharged in 2011 but I was given a house in 2012, and the house and land were worth about 85k.

Lev :

For rental... Considering your situation - you do qualify to exclude the canceled debt as "qualified real property business indebtedness" No need to verify insolvency - still you will need the tax attribute reduction - means the basis should be reduced by the amount of debt forgiven.Use Form 982 - www.irs.gov/pub/irs-pdf/f982.pdf - specifically - for rental property - check the box 1(d) - Discharge of qualified real property business indebtedness , and put the forgiven amount on the line 2 and on line 4 and line 10a. The line 10 is specifically to reduce the basis. .

The disposition of the property is reported on Form 4797 - http://www.irs.gov/pub/irs-pdf/f4797.pdf - is to report the disposition of business property - rental property in your situation. To calculate your gain or loss - you will use an adjusted basis reduced by the amount of debt forgiven.

Lev :

For your personal home - the Mortgage Forgiveness Debt Relief Act of 2007 allows for federal tax purposes an exclusion of income realized as a result of modification of the terms of the mortgage, or foreclosure on your principal residence. More information, including detailed examples can be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. You still need to fill the form 982 and attach it to your tax return. In this case - on the form 982 you need to check the box 1(e) - because that is your primary home.So - two boxes will be checked on this form 982.Line 2 will have total amount.Line 4 - report cancelled debt related to your rentalLine 10b - report cancelled debt related to your main home

Customer:

Ok so total debt is on 2 including house and small loans, but 4 and 10a have the rental property? and 10a isn;t the smallest of those 3 items immediately after discharge? My smallest is personal assets less liabilities.

Customer:

I believe I do not qualify for the relief act because the foreclosure took place in 2012? Is it not included in the Chapter 7?

Lev :

line 2 - include all discharged debts that you are eligible to exclude.

Lev :

Line 4 - include debts related to rental property mortgage - that corresponds with box 1(d) which should be checked.Line 10a - include discharged mortgage related to your primary home - - that corresponds with box 1(e)If you have additional personal loans - like credit card debts - which were discharged in bankruptcy - check box 1(a) as well.If some debts were discharged in 2011 and some in 2012 - you need to file form 982 each year.

Customer:

How do I know which year the debts were discharged when I never got a 1099 and at least 1 of the banks just had the loans disappear- they cannot find them?

Lev :

If the loan was discharged - the form 1099C is required.If you did not receive the form - you may contact the creditor and verify.Another option - to request your tax account transcript from the IRS and verify if the form was sent to the IRS. However because the government financing issues - we may expect a delay in responses.

Customer:

Thanks for your help. I am still a little unsure about line 10a; it says to include the smallest of 3 items, so I would need to do my assets less liabilities at discharge if that is smallest?

Lev :

Do you have any properties after bankruptcy for which the basis may be reduced?

Customer:

I had no properties as of the date of the bankruptcy discharge.

Customer:

I did have cash on had a used car and furniture and clothing.

Customer:

cash on hand

Lev :

So - if you had no properties - there is no propertied to adjust the basis - and no need to worry about line 10a

Customer:

Since the rental property was included in the bankruptcy do I still bneed to reduce the basis on \line 5? It was later reposessed.

Lev :

Yes - you need to report the disposition of your rental property on form 4797 and need to use adjusted basis,

Customer:

How does that relate to the amount owed? do I not use that?

Lev :

It doesn't related to the amount owed - but it does related to the amount of debt discharged. Because the amount of debt discharged excluded from your taxable income - you must deduce the basis of your rental property by that amount.

Customer:

OK on line 4 I put the amount of debt discharge and line 5 the adjusted basis of the property?

Lev :

are you asking about form 982?

Lev :

On form 982:Total amount of discharged indebtedness excluded from gross income - is reported on line 2.The amount related to rental property for which you will reduce the basis - report on line 4.Do not report anything on line 5.Do not report your basis on form 982 - you will use it on form 4797 when report the disposition of your rental property.

Customer:

Ok thanks and I guess I will use 982 for my main residence because I did get a tax form from the bank in re that property.

Lev :

Still I suggest to verify if the bank will send you any forms - and if yes - for which year. So you will know with which tax return to report.

Customer:

Yes I called and only 1 bank has. I will try and figure out 982. Thanks for all your help. I got a 1 week free thing online so I will get back on and ask someone should I have more questions.

Lev :

Sure - you are welcome back if you need any help.You may come back to this page.

Hi again, It turns out the 1099-a I got was for the rental. So I report this on the 4797, but do I report the FMV as the sale price? And what about the outstanding balance, and the fact I had a HELOC on that property as well? It was upside down since it got repossesed in the middle of the housing bust. Do I include the outstanding balance anywher eon this form, or just my basis?

On form 982 line 10b it says”Applied to reduce the basis of your principal residence. Enter amount here ONLY if line 1e is checked1e is for the mortgage debt relief act, which I cannot use in my case without incurring about 25 k in taxable "income" from my Heloc.Mine was forgiven under bankruptcy but here is no other place on this form to put a home loan what do I do?Do I include the primary residence that was repossessed after bankruptcy on 982 (the bottom) or just include the loan amounts discharged on line 2?

When the debt is discharged in bankruptcy - and that debt may not be excluded as related to your primary home - check box 1(a).Include that amount in line 2 form 982.If do not have any other properties or any other tax attributes - do not report that amount anywhere else on form 982.

Hi Since the rental property was also included in the bankruptcy and foreclosed upon do I skip reporting it as an adjustment to basis on line 4 of form 982 since the basis is already gone once the property is gone? Or do I report it then use the adjustment to basis on 4797?

Also when I do the 4797 do I skip reporting the home equity loan on the rental or how do I report it since it was not a loan at the time of purchase? Do I not put it on 4797 and just leave it with the unsecured debt on form 982?

I need to know more about how to use the 4797 in a foreclosure in bankruptcy for an upside down property. Do I make the initial listing under section 1 or 3? I did not get a 1099 for the associated HELOC so do I just list the primary mortgage, and list the FMV as the sale price? This shows I had a loss however and although I know it is not a loss because of the bankruptcy, is it not actually a gain? How do I record this?

If the property is disposed in foreclosure - that transaction is reported as the sale.In general - we need to use the fair market value as a sale priceIf that a non recourse loan - we need to use the amount of the loan outstanding as a sale price.That is based on the law in your state.You report the sale transaction in Part I The gain or loss is calculated as )(selling price) MINUS (adjusted basis)

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. OrvilleHesperia, California

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